A bankruptcy court in South Carolina is about to decide the fate of $12.5 million in municipal bonds.
An injunction preventing the borrower’s assets from being auctioned off expires on Wednesday.
Jasper Pellets, LLC, a manufacturer of wood pellets, filed for Chapter 11 bankruptcy in South Carolina on May 27, citing financial difficulties over a contractual dispute with a distributor.
The trustee of the 2018 tax-exempt bonds issued to the company, US Bank, initiated foreclosure on the company and organized a public auction of assets for May 31, which was canceled after Jasper Pellets filed a stay with the bankruptcy court, on appeal such a sale would have caused “irreparable damage” to the company as it attempted to restructure in hopes of resuming production.
The order gave both parties until the end of August 17 to present a settlement or leave the decision to the court.
The 2018A and 2018B Series Solid Waste Revenue Removal Bonds were issued through the South Carolina Jobs-Economic Development Authority. The state agency and the government are not liable for the debt.
The unrated bonds were sold in two tranches by Ziegler.
Series 2018A was $11.14 million tax-exempt and subject to the alternative minimum tax, which yielded 7.25% on a 7% coupon with a 2038 maturity date. Series 2018B, tax-exempt with no AMT exposure, was for $1.36 million of tax-exempt notes with a yield of 6.75% at a coupon of 6.5% and a 2023 maturity date. Both had a buy-in of $100,000 and were only offered to institutional investors.
Jasper Pellets used the proceeds to refurbish and expand a recently acquired manufacturing facility to process more solid wood waste and produce and export more compressed wood pellets, which are used as a source of energy for households and power plants mainly in Europe.
In June 2018, Charles Knight, CEO of Jasper Pellets and a 30% shareholder in the company, announced the deal in a press release, stating that the company’s investment “is expected to create 27 new jobs over the next five years”.
The move was praised by local officials including Gov. Henry McMaster, who said in a statement: “Every time a company is able to open a store here, it proves what we already know that we have one of the most competitive business environments in the world world and a workforce that can get the job done.”
Prior to the Bond deal, Knight’s company was based in Florida under the name Ridgeland Pellet Company, according to state business records. In 2017, the company rebranded and Knight, along with three other stakeholders, sought the state-approved tax-exempt bonds to purchase, renovate, and expand an existing wood pellet company in Jasper County, home of 40,000 people.
By 2021, the company had tax issues, according to a series of filings on the Municipal Securities Rulemaking Board’s EMMA disclosure website.
The company also drew complaints from residents about noise and safety risks, as well as a lawsuit from environmental groups accusing Jasper Pellets of installing new machines that would produce more pollutants without the proper permit.
It was settled out of court after Jasper Pellets agreed to a $15,000 fine after a state investigation found the company had violated Title V pollution referral rules.
According to Patrick Anderson, an attorney for the Environmental Integrity Project who worked on the lawsuit, the law was designed to ensure that industry “complies with all emissions standards,” as a matter of principle.
“The Title V permit requires you to perform additional monitoring and record-keeping,” he explained, “to ensure you are complying.”
The state’s decision also halted Jasper’s efforts to expand its manufacturing capacity, according to a statement from the company following the decision.
With no enhanced ability to meet obligations, the company ran afoul of a contract with a European importer — a dispute cited as the main reason for the company’s bankruptcy, according to court documents.
In its most recent note to bondholders dated August 5, the US bank merely stated that “defaults have occurred and continue to exist” and that “the Trustee will continue to update bondholders as material developments occur.”
When asked, the US bank declined to comment further on the matter.
The wood pellet production industry is driven by demand in Europe where regulations treat it as environmentally friendly.